Hougan: Three ETFs For Contrarians

August 24, 2015

One of the best parts of my job is that I get to speak to a lot of smart advisors and wealth managers who study the markets and are always looking for new opportunities. Since my personal portfolio is exquisitely boring, I live vicariously through these swashbuckling investors willing to trade where most investors fear to tread.

With the markets in turmoil, I’ve been speaking to more of them than usual, and the most swashbuckling of the lot are starting to chatter about looking for bargains. I usually ignore this unless multiple people mention the same ETF.

Here are three bottom-fishing ideas that have come up with multiple people in the past month.

Contrarian Pick No. 1: Global X MSCI Argentina ETF (ARGT)

This ETF hasn’t attracted much in the way of assets since it launched—just $15 million at last check. But as the only ETF offering exposure to Argentina, it’s getting an increasing amount of buzz.

Argentina has been a basket case for the past 20 years (you could argue “for the past century”), with political corruption and loan defaults occurring with frightening regularity. But it’s widely seen as a country with great potential, including huge, untapped natural resources and a solid manufacturing base.

The outlook for ARGT hinges in large part on the October (and November) elections.

If opposition candidate Mauricio Macri can win the presidency, the consensus believes he would reopen Argentina to foreign investment and pursue business-friendly policies. The first round of elections takes place October 25.

Most assume Macri will lose that round in a multiparty ballot to ruling party favorite Daniel Scoli. But if Macri can keep the contest within 10 percent, he’ll force a runoff election in November, which some predict he’ll win.

That would open the doors for ARGT. Interestingly, it’s clear some are already betting on this outcome: The fund is one of the few emerging market/frontier market ETFs with a positive return over the past three years, having posted 2.85 percent annual returns for that time.

That compares with a 12.42 percent annualized loss for the longest-running broad-based frontier market ETF, the Guggenheim Frontier Markets ETF (FRN | F-26).

Contrarian Pick No. 2: Market Vectors Gold Miners ETF (GDX | C-76)

Watching the Market Vectors Gold Miners ETF over the past few years has been an exercise in pain. The fund is down more than 75 percent from its highs in 2011, as collapsing gold prices and continued mismanagement in the gold mining patch have sent prices falling.

But my inbox has been filling up with people poking around at the gold miners. With energy prices down and gold prices (maybe) turning the corner, people see upside in this broken-down name.

The fund had a great August, rising 9.5 percent even as the markets tumbled. Investors have plowed about $120 million in net new money into the fund in the past week. If gold stabilizes, GDX could do well.

Contrarian Pick No. 3: EMQQ Emerging Markets Internet & Ecommerce (EMQQ | F-21)

In general, I’ve been hearing chatter from my bottom-fishing friends about finding opportunities in emerging markets. With broad-based emerging markets down 22 percent this year—and emerging markets now trailing the S&P 500 over the past 11 years—people think there must be opportunity.

EMQQ founder Kevin Carter stopped by the ETF.com headquarters in San Francisco last week and laid out a strong case for his nascent fund. While the fund has fallen in lock step with emerging markets in the past few days, it continues to hold a portfolio of stocks with amazing growth stories: Alibaba, Tencent, Baidu and firms like 58.com, the so-called Craigslist of China.

The P/E of the fund is still high—31 at last reading—but its companies are growing fast and already making real money. As something to buy and hold for 10 years in a satellite position, it could be interesting.

Conclusion

I’m not nearly bold enough to own these funds. I like broad-based asset allocation in my own portfolio, holding a diversified basket of low-cost ETFs and rebalancing occasionally.

But for those looking for satellite opportunities, these are among the ETFs I hear smart folks talking about. They’re at least worth considering.


Contact Matt Hougan at [email protected].

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